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Strategic Management
Strategic Management
Strategic Analysis
Strategy analysis seeks to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. The firms present strategies, objectives and mission coupled with the external and internal audit information provide a basis for generating and evaluating feasible alternative strategies.
Scanning (Step 1)
Changes
in macro environment Changes in market Nature of competition Customer needs Product offerings
Types of scanning
Concentrated
Comprehensive
Contd
relavent forces in the environment Determine sources of observation Select scanning methods Scan and respond to data
Define Mission, Goals and strategies Strength and weaknesses Analysis Identify Unique Resources Identify Core Competencies Locate Strategic Advantage
Unique
Environment
Customers
Contd
Remote
Environment
Political-legal
Political system Political institutions Political philosophies Laws Courts of law Law of administration
Economic
Contd
Socio-Cultural
Demographics Social institutions Pressure groups Social change and mobility Cultural environment (attitudes, values, beliefs, religion and language)
Level of technology Technological change Technology transfer Research and development budget
Technological
Organizational goals and policies Organizational structure Organizational resources Organizational culture
Strategic Alternatives
The firms present strategies, objectives, and mission, coupled with the external environment and internal audit information, provide basis for generating and evaluating feasible alternative strategies. Unless a desperate situation confronts the firm, alternative strategies will likely represent incremental steps that move the firm from its present position to a desired future position. Alternative strategies dont come out of nowhere, they are derived from the firms vision, mission, objectives, external audit, and internal audit; they are consistent with, or build on, past strategies
Contd
The strengths-weaknesses-opportunities-threats (SWOT) matrix is an important matching tool that helps managers develop four types of strategies: SO (strength-opportunities) strategies, WO (weaknessesopportunities) strategies, ST (strength-threats) strategies, and WT (weaknesses-threats) strategies. SO strategies use a firms internal strengths to take advantage of external opportunities. WO strategies aim at improving internal weaknesses by taking advantage of external opportunities. ST strategies use a firms strength to avoid or reduce the impact of external threats. WT strategies are defensive tactics directed at reducing internal weakness and avoiding external threats.
Contd
SWOT matrix is composed of nine cells. There are four key factor cells, four strategy cells and one cell that is always left blank (the upper left cell). The four strategy cells, labeled SO, WO, ST and WT are developed after completing four key factor cells labeled S, W, O and T. There are eight steps involved in constructing a SWOT matrix
List the firms key external opportunities. List the firms key external threats. List the firms key internal strengths. List the firms key internal weaknesses. Match internal strengths with external opportunities, and record the resultant SO strategies in the appropriate cells.
Contd
Match internal weaknesses with external opportunities, and record the resultant WO strategies. Match internal strength with external threats, and record the resultant ST strategies. Match internal weaknesses with external threats, and record the resultant WT strategies.
Pest Analysis
PEST is concerned with forces in the external environment. It looks at their future impact on the organization. PEST comprises the following forces: P= Political-Legal forces E= Economic forces S= Socio-cultural forces T= Technological forces
Pest analysis helps identifying future opportunities and threats to the organization.
Contd
Opportunity is a favorable condition in the environment. It enables an organization to consolidate and strengthen its strategic position. Threat is an unfavorable condition in the environment. It creates risks and causes damage to the organizations strategic position.
PEST analysis indicates what environmental forces are affecting the business and which of them are the most important one.
Contd
Porters Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. The intensity of competition among firms varies widely across industries. Intensity of competition is highest in lower return industries. For e.g. in electrical and electronics industry, collective impact of competitive forces is so brutal that the industry is clearly unattractive from a profit-making standpoint. Rivalry among existing firms is severe, new rivals can enter the industry with relative ease, and both suppliers and customers can exercise considerable bargaining
Contd
Balance among competitors High exit barriers Low switching costs High fixed costs Slow market growth Economies of scale Capital requirements Product differentiation Access to distribution channel Customer loyalty Retaliation Experience Government actions
Contd
Contd
Concentration of consumers Large number of small suppliers High material cost Low cost of substitution Backward integration
Grand Strategies
Market-oriented Strategies
Grand Strategies
Corporate strategy is overall strategy that provides longterm direction and scope to the organization. It defines products, markets and functions. It is also known as grand generic strategy. It is concerned with managing a portfolio of businesses and allocating resources to them. Grand Strategy can be:
Stability strategy
This strategy is pursued in relatively stable environment. The existing business definition is maintained. There is no change in products, markets and functions. The organization is the market leader. The product is at the maturity stage in product life cycle. Stability is aimed through
No change strategy: Current policies and operations are continued. Pause Strategy: Moving with caution. Profit Strategy: Profitability is sustained.
Growth Strategy
This strategy is pursued in highly competitive and changing environment. New products, markets and functions are added. The product is in the growth stage of product life cycle. Growth is through increased market share and production capacity. Growth strategy is achieved through:
Growth through concentration: Specialization in one activity. This example is fast food chains. Growth through integration: combining activities, vertical or horizontal
Contd
Vertical Integration: Backward or forward integration into adjacent activities of current business. Backward is related to inputs. Forward is related to outputs. One business feeds the other in the same industry. Horizontal Integration: Integration into activities which are competitive or complementary with present activities. It entails moving into more than one industry. Growth through diversification: Change in products, markets and functions. New business is started.
Diversification can be: Related Diversification (concentric Diversification): It is through acquisition of firms that are related in terms of technology, products and markets for the acquiring Firm. Unrelated Diversification (conglomerate Diversification): It is growth through acqusition of firms that are unrelated in terms of technology, products and markets for the acquiring firm.
Contd
Growth through cooperation: Cooperation among rival firms e.g. mergers, acquisitions, joint venture, strategic alliances.
Retrenchment Strategy
This strategy is pursued in threatening environment, products, markets and functions are reduced. The pace of activities decreases. The product is in decline stage of product life cycle. Cash flow is negative. Retrenchment is aimed through reduced market share, dropping product lines and markets, and divestment. The aim is contraction of activities through:
Turnaround strategy: reversing a negative trend to increase efficiency. Cost is reduced, unprofitable products are dropped, work force is reduced, distribution outlets are trimmed. Divesture strategy: sale of a portion of business to exit from market. It may be to get rid of losers or to finance new
Contd
Combination Strategy
This strategy is pursued in many and changing environments. The organizations has several Strategic Business Units (SBUs). It simultaneously uses combinations of stability, expansion and retrenchment strategies to different parts of the organization. Old products, markets and functions are continued, dropped or expanded. Product life cycle are in different stages. The aim is to improve performance. The combination can be:
focus of this strategy is on cost. Low cost leadership means low overall costs. Low cost means lower prices relative to competitors. It finds ways to reduce cost by reducing waste. This strategy appeals to price sensitive buyers. Ways of reducing cost:
Control
cost drivers: drive down the costs by doing a better job than competitors i.e. costs are reduced in each activity segment of value chain through:
Contd
Cost of key resources Resource sharing Outsourcing Capacity utilization First mover advantage Integration
Revamping Value chain: costs can be reduced by revamping value chain through:
Shifting to e-business Direct marketing Simplifying product design No-frills offers Bt pass high cost materials Relocate facilities Reengineering
Contd
strategy focuses on differentiation. Differentiation aims to establish uniqueness of a brand relative to competing brands in the minds of customers. It is making products different from competitors product. It incorporates differentiating product features. Customers perceive superior value in differentiation. Bases of differentiation:
Product
Contd
Services back-up: delivery, installation, repair, trainings, availability of spare parts Personnel : better and experienced personnel to serve the customers Promotion: using differentiating claims in promotion appeals Image: projecting organization or brand image
Drivers of Differentiation
Unique product performance Unique product features New technologies Unique services Detailed information
Market focus
The focused strategies concentrate on niche of the market. Niche is a narrow piece of the total market. It is identified by dividing a market segment into sub segments. It consists of fairly small groups of customers whose needs have not been well served. The niche can be defined by:
Demographic
Contd
Geographical
Focused strategies aim to serve buyers better than the competitors and can be of two types:
Focused
Suitability
Ranking
Decision
Trees Scenarios
Acceptability
Return
Feasibility
Fund
Flow Analysis
Break-even